CAISO Proposes Flexible Ramping Product

The California Independent System Operator (“CAISO”) has taken a significant step toward proposing a new ancillary service known as the “Flexible Ramping Product” as part of its market design. With increasing levels of variable energy resources on the CAISO-controlled grid, maintaining power balance requires increased ramping capability, as the variable outputs of the renewable resources may increase the magnitude of 5-minute to 5-minute net load changes. In a Straw Proposal issued June 2, 2014, the CAISO proposes to use the Flexible Ramping Product to address these emerging operational challenges relating to maintaining power balance in real-time dispatch. In doing so, the CAISO emphasized that while its existing regulation service product could be called upon to address forecast uncertainties, procuring more regulation service is problematic from an economic and market efficiency perspective both because the generating capacity of some resources must be reserved to provide regulation service and because more real-time dispatch prices will be compensated at administratively-set penalty rates. The CAISO stated that its Flexible Ramping Product is designed to deal with uncertainties that are realized before the binding real-time dispatch using a market-based design to procure ramping capacity in the CAISO’s day-ahead market, fifteen-minute market and real-time dispatch.

In December 2011, the CAISO implemented a flexible ramping constraint interim compensation methodology as part of its five-minute market optimization for real-time dispatch to procure sufficient ramping capability, pending development through a stakeholder process to evaluate the creation of a flexible ramping product procured through economic bids. Under the CAISO’s current market rules, resources that resolve a constraint are compensated at the shadow price, which is the marginal unit’s resource specific opportunity cost. The Flexible Ramping Product will replace the existing flexible market constraint and provide the CAISO with a means to procure sufficient ramping capacity through economic bids. The Straw Proposal issued last week describes the CAISO’s market design proposal for a flexible upward and downward ramping product.

In the Straw Proposal the CAISO observes that the fleet of units determined in the real-time unit commitment process is sometimes not positioned with sufficient ramping capability and flexibility in real-time dispatch to handle the 5-minute to 5-minute system net demand and supply changes. Under current market design, the CAISO has to rely on frequency regulation services to resolve power imbalance in real-time after the imbalance has caused a frequency deviation or an area control error. While frequency regulation services are capable or correcting power imbalances, over-reliance on frequency regulation to compensate for inadequate ramping capability may, as discussed above, lead to economic and market inefficiencies.

To ensure the procurement of adequate flexibility and ramping capacity while improving economic and market efficiency through economic bidding for the provision of ramping services, the CAISO proposes an upward and downward flexible ramping product to meet 5-minute to 5-minute net system demand changes, or net system movement, in real-time dispatch. Through the Flexible Ramping Product stakeholder process, the CAISO will also evaluate allocating costs to generation and load in accordance with cost causation principles. The Straw Proposal discusses product design, procurement and settlement procedures, example scenarios, and other issues.

Resources capable of providing the proposed Flexible Ramping Product may include natural gas-fired power plants, energy storage, demand response, and other flexible resources. The proposed schedule for the remainder of the Flexible Ramping Product stakeholder process is provided below.

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